Sorry for tooting my own horn. Now that I have gotten your attention, I just want to let you know that this post here is to illustrate the power of knowledge and not to trade in and out of the market short term.
I would also want to recommend an investment book which I find very useful. This investment book has helped me understand market volatility and prepped me psychologically to take advantage of drops in share prices. I am sure the book will come in handy for those of you out there waiting to enter the market during a correction. (On a sidenote, haven’t we been waiting for a bear market since 2010???)
The book I am talking about is Contrarian Investment Strategies by David Dreman. In his book, he talks about bubbles, panics, volatility and how to profit through them. One thing I love about the book is its explanation of how bubbles form. It is a very insightful read that many value investing books don’t teach you about. After reading the book, I started keeping my eye out for bad news, itching to make a profit from fear in the market.
I chanced upon an article in February 2014 reporting about how the a fall in rupiah was affecting Jardine C&C earnings. In case you all don’t know, Jardine C&C owns majority shares in a company called Astra, which is a distributor of cars in Southeast Asia. In Indonesia, Astra dominates about 50% of the market share for car distributorship. This is important as the main bulk of Jardine C&C’s revenue comes from Astra.
Knowing that Jardine C&C was a relatively stable blue chip stock, I decided to take a look at how its stock price was affected by this currency fluctuation.
The stock price had fallen from a peak of $54 to almost a low of $36 when I found out about the news.
I went to read up on the financials of the company and the CEO even cited that Astra lost about 1-2% market share to competitors in Indonesia. I saw that the earnings-per-share dropped by 19% by comparing the 9 months from 2012-2013. Debt from 2012-2013 was also more or less unchanged and Free Cash Flow in Q3 2013 was positive and even showed an increase. Surely the fears have been overdone?!
I felt that the price should be around $45, and that the current price of $36.1 was way too cheap. I also thought that currency fluctuations would correct themselves over time and that Jardine C&C’s management would be capable enough to ride out the tide. After all, they were the guys who brought the stock from an IPO price of about $4 in 2000 to a peak of $54 in 2013! What great businessmen! Even if I was wrong, I could just hold on and collect the dividends of about 3.5% then.
I bought, shoved in the money and waited. Little did I realise, Joko Widodo was campaigning for presidency then and market expectations of him winning pushed Jardine C&C to a price of $49 within a short span of 3 months. That’s a gain of 35%. Again, I thought, this is irrational! The market has to be over-reacting to this news.
The CEO of Jardine even warned that 2014 would continue to be a tough year for the company. I pondered whether to sell. By then, I had already spotted other stocks which I felt were undervalued. I decided that although value investing is a proponent for buying and holding long term, this irrational run up in stock price gives me the chance to exit early. I sold the stock with a sweet 12k plus profit but I felt slightly guilty – for holding a stock for only 3 months. I have to admit though, that I felt mostly satisfied.
Feeling rich, I went to Uniqlo to buy a pair of $36 berms to reward my “good decision”. I then saw the sign “Retail Assistants Needed, $1.6k per month”. Suddenly, it hit me:
I had just made 12k doing nothing but sitting on my ass, clicking the mouse, and reading some financial reports. The overall process probably took me less than 2 hours of my time. I have just made the same amount of money these retail assistants would have made working for 6 months!
( Dear reader, I hope you don’t take offence here. I used to work part-time in retail before. It was damn xiong. Let me continue…)
After I paid for my berms, I couldn’t stop thinking about the power of knowledge versus skill-based menial labour. For skill-based labour, you can perform the job and get paid. But with Knowledge, your earning power increases as you will be equipped with more tools to make more money! It is a compounding effect! It applies to jobs too. The more you learn, the greater your value, the higher your earning power. You can command a higher salary with more Knowledge; you can make use of your Knowledge to improve your business or even start a sideline.
I traced back to all the times I had spent poring over investment books, desperately trying to absorb everything like a sponge. It had all paid off. The money I invested, has rolled and accumulated till I could shove it into Jardine C&C, before I took it out and reinvested into other stocks.
I remembered just a few years back, I was sitting on a bus after work, reading an investment book diligently and a colleague said to me:
“Wow, how can you keep reading these kind of books?”
I replied, “Don’t you think investing is an important skill that schools don’t teach?”
“True,”he agreed. “But I got no time to read… haizzz…”
He then proceeded to play Candy Crush on his Iphone for the next 45 minutes of the bus ride.
Ever since my realisation after the Jardine C&C trade, I became a knowledge addict. I started learning as much as I could in whatever I deem useful. I gobbled down more investment books, more business books, attended online courses and even learnt skills that are unrelated to investing like ( SEO, coding, marketing, website development, leadership, negotiation, etc.) Whenever I am driving around, I will be tuning in to entrepreneur podcasts to learn more from the experiences of others.
I am hooked on Knowledge.
Strangely, the more you know, the more you realise you don’t know. Would I have made that Jardine C&C trade if the same opportunity presents itself today?
My investing style has changed drastically within 1 year and I would never commit myself to such concentration risk again.
Oh, the irony of knowing more!
Dear readers, it’s not too late to start learning. I strongly recommend you get this book Contrarian Investment Strategies: The Psychological Edge
Or would you rather use your time to play Candy Crush?
Feel free to click on the image to go to Amazon.
Here’s another way to enrich your knowledge…
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Victor and Rusmin from the Fifth Person will be providing a detailed analysis of 3 stocks. All you need to do is to take some notes!
Other speakers include:
AK, the man who earns $150K in yearly dividends.
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Topics that will be covered:
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